The recent stock market drop startled a lot of investors. No one should have been surprised.

This is not a claim that I saw it coming. I cannot predict the market. I learned that years ago. Like many important life lessons, it wasn’t cheap. But the lesson stuck.

The reason you should not be surprised by a sudden market drop, seemingly out of the blue: because that’s what the market does, every so often, and that’s what investors sign up for.

The goal of this blog is to help you not be surprised by market volatility. If you’re not surprised, you’re far less likely to do something you’ll regret later – like selling in a panic.

Here’s what to expect as a stock market investor:

• On an average day, the stock market will provide a positive return. The odds of making money are about 55% on any given day. I use the word “return” intentionally. Return is a combination of dividend income and price appreciation.
• However, there will be real downturns, which can occasionally be severe, and which can last for months or even years. Over the last century, the US market had an average annual return of 10%. But in one quarter of calendar years, the market return was negative. In 15%, the return was -10% or worse. The next time we have a year like 2022, when the market return was -21%, just remember: it’s not unusual.
• On average, taking risk by owning stock pays off. The annual return from owning 1-month US Treasury bills, which are the safest investment you can find, averaged 3.3% over the last century. Compare that to the US stock market’s 10% average annual return.
• There will be no advanced warning before a market drop. Because there are thousands of market commentators, some will have predicted it. But most will not have seen it coming.
• You can’t reliably forecast a sharp upward rebound. Ditto on the market commentators’ inability to see the bounce coming.

In the short run, the stock market is risky and unpredictable. If you can’t take that risk, buy bonds or something less volatile. But if you can take risk with at least some of your money, all you need to do is hold on tight when the market drops. History tells us it will eventually recover. An investor who plays the long game will almost surely generate an attractive return.